For those who weren’t able to attend our PartnerConnect 2012 conference in the spring, we have a real treat for you: an interview with buyouts legend Henry Kravis. This is the only conference Kravis has spoken at this year and he may not speak at another before 2013 due to his busy schedule.
Kravis, co-chairman and co-CEO of KKR, was interviewed on April 3 by Stephen Adler, editor in chief of Reuters News.
Here are some snippets of what Kravis said in the 38-minute interview:
When KKR started in 1976, it found a very bleak fundraising environment. “We literally could not raise a $25 million fund,” Kravis said. “We went out to do that and got halfway there. [We] probably could have raised the rest in terms that weren’t particularly attractive to us.”
Expanding Beyond Buyouts
Over time, KKR found that focusing strictly on buyout deals limited the number of opportunities it could participate in. That really hit home in 2004, when it was exploring a deal with The Williams Companies, a pipeline company based in Tulsa, Okla. Williams needed some long-term subordinated debt and some capital, but KKR “couldn’t do it,” Kravis said. “We didn’t have that capital or that capability. Along came Warren Buffett and made a terrific investment.” Missing out on that deal “finally convinced us that we should go ahead and figure out how to invest up and down the capital structure,” he said.
Kravis says KKR’s Asia investments have largely been focused around consumers. “The consumer in Asia is moving up the socio-economic ladder,” he said. “In China, in particular, more and more people are moving from the rural areas to the city and now it’s almost 50/50. And they want what we have; they want what the West has.”
For example, KKR invested in an auto dealership company outside of Shanghai.
“We probably wouldn’t think about auto dealerships in the west, but there everyone wants a car,” Kravis said. “We have 28 auto dealerships right now and it’s growing like a weed. They can’t keep the cars on the lots, even though they are priced at probably twice of what you pay here [in the U.S.] because of tariffs.”
“The Eurozone is going to make it in the long-term,” Kravis said. “You have to be patient [and] you have to be selective about where you’re going to invest. To make a broad, categorical statement and say, ‘private equity doesn’t work in Europe,’ I’m not sure I would buy it.
“We have always done the best at KKR when there has been absolute volatility or when people are looking at their navel and basically saying woe is me. That’s the best time to go make investments. You have to dig and use all of the tools you have.”
“We think it’s a very good hedge against inflation,” Kravis said. “You look at supply and demand on the liquid side on a global basis, [and] we think oil prices will stay high for a long time.”
“For years I’ve been giving my time or my money. I love it. … From my standpoint it is one of the most rewarding things that I’ve done. Yes, we could buy another company and oh that’s nice, but being able to look at the smile on people or have a young person come up who said, ‘Mr. and Mrs. Kravis, you made a huge difference in my life. You got me off drugs because of the program you created,’ money can’t buy that.”
Image credit: Henry Kravis of Kohlberg Kravis Roberts & Co. speaks at Thomson Reuters’ PartnerConnect 2012 in New York, April 3, 2012. Photo by Shannon Stapleton, Reuters